Amazon's Kindle Fire is a Catch-22 for retailers: The $199 tablet computer could both help Christmas traffic and hurt future sales.
Retailers hope the Kindle Fire's low price tag — which is less than half that of Apple's cheapest iPad tablet — will attract shoppers to stores during the busy holiday season. But the device, which offers free shipping and other incentives for customers to shop at Amazon, ultimately could drive sales to their online nemesis.
"I could impulse shop," said Robin Rothberg, 33, a lecturer at the University of North Carolina in Charlotte. "My phone is too small and my laptop is too cumbersome to start on a whim. But a tablet would put e-commerce nearly instantly at my fingertips, anytime."
That's the dilemma retailers now face. Tablets are almost sure to be a big hit this holiday season for the likes of Wal-Mart and Best Buy. But at a time when more consumers are eschewing big-box stores to shop online, tablets are making it easier for them to do so. In fact, a Forrester Research study found that more shoppers who browse on tablets tend to buy — and place bigger orders — than they do when using personal computers or smartphones.
"Every electronics retailer has said that tablets are going to be a cornerstone of holiday offerings, so it is important to have the product in stores," says R.J. Hottovy, a Morningstar analyst. But, "It could work against them, very much so."
Retailers long have depended on electronic gadgets to drive sales during the holiday period. (Think: smartphones last year and flat-screen TVs the Christmas before.) New products during the holidays can build buzz and drive traffic to stores, which can lead to higher sales during the two-month period in which retailers can make up to a third of their annual revenue.
This year is no exception. Forrester Research expects 24 million tablets will be sold in 2011, topping the estimated 20 million PCs that are expected to be sold, but short of the 29 million laptops that are expected to sell.
Apple's iPad2, the cheapest model of which costs $499, is the dominate player. The iPad accounts for three out of every four tablets sold. Other tablets make up a small percentage of the market, including the Motorola Xoom ($499 for the Wi-Fi only version); the Blackberry PlayBook (starting at $499); and CherryPad's CherryPal ($190.)
The Kindle Fire, which was unveiled last Wednesday, is the first tablet that's expected to be a formidable competitor to the iPad2. Forrester Research predicts Amazon could sell 3 million of the tablet that runs on Google Inc.'s Android software by year's end. Meanwhile, Apple has sold nearly 29 million since it released the first one in April 2010.
"We think these Kindles are going to be some of the hottest gifts this year," said Brian Dunn, CEO of Best Buy Co., the nation's largest consumer electronics retailer that has been struggling in the down economy. He adds that tablets and electronic readers have "captivated consumers."
But Amazon's tablet could do more than that. The Kindle Fire's ability to show e-books, surf the Web, stream movies and TV shows and support apps is expected to drive sales of Amazon's digital content. These capabilities could be a big draw for consumers, many of who already are ditching paperback books and DVDs in bricks-and-mortar stores.
The tablet could also drive sales of clothes and other doodads away from retailers to Amazon. The Kindle Fire comes with a free month of Amazon's premium shipping service, Amazon Prime. The service, which costs $79 per year, gives users unlimited two-day shipping on any items purchased on Amazon, as well as free access to 11,000 streaming movies and TV shows. After that period, Kindle Fire users can pay for the service.
Amazon Inc. did not immediately return a request for comment.
Kevin Engelkamp, 26-year-old business analyst who lives in Omaha, says once he gets a Kindle Fire, he plans to take advantage of all the perks.
"I'd probably order more (on Amazon) since I'd have free two-day shipping," said Engelkamp, who shops online a couple times a month. "I'm definitely going to ask for one for Christmas, and if I don't get it I'm going to buy one for myself."
For now, the excitement surrounding the Kindle Fire is expected to be a boon for Amazon and bricks-and-mortar stores alike. The tablet, which ships Nov. 15, has been the top-selling electronics device on Amazon since it debuted. And stores are gearing up for brisk sales of the tablet.
"We were hoping they would come out with a device that would take the market by storm; it's getting great reviews and the price is fantastic," said Mark Mettler, a senior vice president at office supply retailer Staples Inc., who added that he does not consider Amazon a competitive threat. "We wouldn't carry Amazon's products if we didn't support efforts."
But John Tomlinson, an ITG analyst, said the outlook for retailers may be grim.
"It exacerbates the sharp decline in sales of physical books and movies," he said. "Long term, it continues to highlight the challenges brick-and-mortar retailers will face."
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